BUSI 101 1st Edition Lecture 4Outline of Last Lecture I. Return Practice ProblemsII. Review of Four Main AccountsIII. MaterialityIV. InvestorsV. Journal Entry PracticeOutline of Current Lecture VI. Review of Financial and Managerial AccountingA. External vs. Internal AccountingVII. Return Practice ProblemVIII. The Four Accounts ReviewIX. T-Chart Accountsa. Credit vs. DebitX. In-Class Practice QuizCurrent LectureNo Class on 1/14, 1/19Luca Pacioli – “Father of Accounting” - Started writing about accounting in 1494Financial Accounting – externalManagerial Accounting - internalGAAP – rules based (approximately 25,000), used in the U.S.FASB – does not have congressional powerSEC – body that has congressional power, publicly trade companies file 10-K reports IFRS – principles based, not adopted in the U.S., over 100 countries have (2,000 pages)These notes represent a detailed interpretation of the professor’s lecture. GradeBuddy is best used as a supplement to your own notes, not as a substitute.Big Four – represents the four largest accounting firms:- Deloitte- EY- KPMG- Pricewaterhouse CoopersRETURN:(End Price – Beginning Price)+DividendBeginning PriceEx. On 4/1, Your purchase shares of XYZ company at $80 per share. The quarterly dividend is equal to $0.75 per share. The 12/31 price is equal to $85.75 per share. What is the annual return?(129)((85.75−80)+(0.75) (3)80)=13.33 %Assets – economic resourcesLiabilities - creditor’s claimsOwner’s Equity – owner’s claimsBalance Sheet: A=L+OE5,000 = 3955+1045Revenues: inflows/increases in net assets from providing goods and/or servicesExpenses: outflows/decreases in net assets from providing goods and/or servicesNet Assets: Total Assets – Total LiabilitiesIncome Statement: NI=R-E1200=6000-4800Statement of Cash Flows: changes in the cash account- Changes related to:o Operating activities – I/So Investing activities - LTAo Financing activities – LTL +OEStatement of Owner’s Equity – shows beginning balances, additions, and subtractionsReal or Permanent Accounts – Balance sheet at the beginning of the year is the same at the end of the year (Assets, Liabilities, Owner’s Equity)Temporary or NominalAccounts - closed at the end of the year in order to start fresh at the beginning of a new year (Revenues, Expenses, Net Assets)Debit: Left, Credit: RightModel that we use to record journal entries, transactions, or changes in accountT-Chart Accounts:Assets: + Debit, -CreditLiabilities: -Debit, +CreditOwner’s Equity: -Debit, +CreditExpenses: +Debit, -CreditRevenue: -Debit, +CreditAssets and Expenses have a normal debit balance, they increase with debitLiabilities, Owner’s Equity, and Revenue have a normal credit balance, i.e. they increase with creditJournal Entry Model:Account Debited Amount DebitedAccount Credited Amount CreditedRevenues occur if there is an increase in assets or a decrease in liabilitiesExpenses occur if there is a decrease in assets or increase in liabilitiesEx. A company began operations on 1/1/A with assets of 50 and liabilities of 20. During the year, owner’smade additional investments of 6. During the year, dividends declared and paid are equal to 4. At 12/31/A, assets = 80 and liabilities = 25.1. What are retained earnings at 1/1/A? ZERO2. What is contributed capital 1/1/A? 303. What is contributed capital at 12/31/A? 364. What are your retained earnings at 12/31/A? 195. What is the net income from year A? 236. If expenses were $177, what is revenue? 2001/1/A 12/31/AA 50 80L 20 25OE – CC 30 36OE - RE 0 19Beginning Retained Earnings 0+Net Income 23=Available 23-Dividend 4End Retained Earnings 19Beginning Items+Items IN =Items Available-Items OUT =Ending ItemsBeginning Cash 200+Cash Receipts 2,000=Cash Available 2200-Cash Dispersements 1650End Cash 550(Can also put these in T Accounts)Beginning Accounts Receivable 700+Credit Sales 2,700=Accounts Receivable Available 3,400-Collections 3,000=Ending Accounts Receivable 400Beginning Accounts Payable 100+Purchases on Account 5,000=Available 5,100-Payments on Account 4,200Ending Accounts Payable 900Chapter 3 In Class Practice Quiz (pg. 18)1. A=L+OE200=135 + 652. NI=R-E915=1780-8653. A=L+OE630=70+5604.Beginning Retained Earnings 85+Net Income 61=Available 146-Dividend Declared 25=Ending Retained Earnings 1215. A=L+OEBeg.: 90=75+15∆: 30=-22+52End: 120=53+67Page 81 in Textbook9. Year One Year TwoBeg. Retained Earnings 0 70,000+Net Income 100,000 200,000=Available 100,000 270,000-Dividend Declared 30,000 80,000 =End Retained Earnings 70,000